For most employers and health plans, the time for health care reform implementation is right around the corner. The first step in determining the applicability of health care reform to any health plan is deciding whether the plan is grandfathered or non-grandfathered. For purposes of health care reform, a grandfathered plan is a health plan that was in effect as of March 23, 2010. A non-grandfathered plan is a health plan that either was not in effect as of March 23, 2010 (e.g., a new plan or a plan subject to a collective bargaining agreement with an effective date after March 23, 2010) or an already existing health plan that has opted out of, or failed, the grandfathered status requirements. As described below, non-grandfathered plans are required to comply with many more changes under health care reform.

For a checklist to help you determine whether your health plan is a grandfathered plan, please refer to the attached Appendix A.

In evaluating the next steps and the applicability of health care reform, please keep in mind that retiree-only plans, limited scope dental and vision plans (e.g., stand alone plans) and other HIPAA-excepted plans are not subject to health care reform. In order to make sure you are covered, you may find the following list of action items helpful when reviewing your next steps.

Changes and/or Actions for 2011 for Grandfathered Plans:

  1.  Include language in plan materials providing for intention of the health plan to be grandfathered;
  2.  Eliminate pre-existing condition exclusions for children under 19 years of age;
  3.  Extend coverage for children up to age 26 or through the end of the calendar year in which age 26 is attained (but, grandfathered plans may exclude an adult child who is eligible to enroll in another eligibleemployer-sponsored health plan);
  4.  Revise dependent verification rules to accommodate age 26 change for children;
  5.  Remove annual and lifetime limits for the coverage of essential health benefits;
  6. Limit rescission of coverage to only fraud and intentional misrepresentation;
  7.  Amend health plans to require prescription for reimbursement of over-the-counter drugs;
  8.  Provide notice to affected participants and dependents of re-enrollment rights if coverage was lost prior to 2011 due to annual or lifetime limits or aging out of the applicable health plan.

Changes and/or Actions for 2011 for Non-Grandfathered Plans:

  1. Follow items 1 through 8 above;
  2.  Provide notice of right to designate primary care provider;
  3.  Cover emergency services at in-network rates;
  4.  Cover preventative care at 100%
  5.  Extend the non-discrimination requirements of self-funded plans to insured group health plans;
  6.  Revise the plan’s claims procedures to account for new internal and external review processes.

Recent Health Care Reform Guidance:

Since the enactment of health care reform in March of this year, the Internal Revenue Service (the “IRS”), Department of Labor (the “DOL”) and the Department of Health and Human Services (the “HHS”) (collectively, the “Agencies”) have issued significant guidance (in the form of regulations, notices and FAQs). In order to help sift through all of this guidance and address outstanding issues, we have prepared the following list of materials that have been issued since March 23, 2010 (including links to such materials), along with a short description of the guidance including any outstanding issues.

Internal Claims and Appeals and External Review Appeals Process (Non-Grandfathered Health Plans)

  •  Interim Final Regulations (HHS, DOL, IRS)

  •  EBSA Technical Release 2010-01: Interim Procedures for Federal External Review (DOL)

  •  EBSA Technical Release 2010-2: Interim Procedures for Internal Claims and Appeals (DOL)

  •  Notice: Availability of Interim Procedures for Federal External Review and Model Notices (HHS, DOL, IRS)

The new claims procedures for internal review and external review will most likely be the biggest issue facing employers and health plans. The new claims procedures include many new changes, such as “strict adherence,” use of technical medical diagnostic codes in adverse benefit determinations, reduction of the period of review for urgent care claims from 72 hours to 24 hours, and the requirement for an external review. Fortunately, the Agencies have established a grace period for several key components of the new procedures. During this grace period, the various agencies will not take any enforcement actions for “good faith” implementation on the part of employers and health plans with regard to some aspects of the new appeals requirements. In any event, we strongly suggest that you work closely with your legal counsel and health care providers to ensure adherence to the new claims procedures required by health care reform.

Nondiscrimination Testing (Non-Grandfathered Health Plans)

  •  Notice 2010-63 Requirements Prohibiting Discrimination in Favor of Highly Compensated Individuals in Insured Group Health Plans (IRS)

Health care reform provides that fully insured non-grandfathered plans are subject to the same non-discrimination rules as selfinured health plans under Section 105(h) of the Internal Revenue Code (the “Code”) with a few substantive differences. If a fully insured plan fails to comply with the non-discrimination requirements, the health plan is subject to civil action and/or penalties. On the other hand, if a self-insured plan fails to comply with the non-discrimination requirements, the highly compensated individual loses the tax benefit. Because of broadened application of Code Section 105(h), employers should be mindful of any one-off arrangements with executives or the establishment of new executive health plans. As this notice requests comments to the application of the non-discrimination requirements of Code Section 105(h) to fully insured health plans, additional guidance may be forthcoming.

Preventative Care (Non-Grandfathered Health Plans)

  •  Interim Final Regulations (HHS, DOL, IRS)

While the Interim Final Regulations have clarified the application of the new preventative care rules, several ambiguities still exist that require additional guidance. For example, do preventative services pertain only to the office visit that provides counseling or does it also include the recommended medication (e.g., the payment for aspirin for reduction in myocardial infarctions, ischemic strokes, etc.). Further, it is not clear whether preventative service applies to the initial screening or whether it also applies to the course of treatment that follows. Additional guidance is needed to clarify these ambiguities.

Pre-existing Conditions Exclusion, Lifetime and Annual Limits, Rescissions and Patient Protections (All Health Plans)

  •  Interim Final Regulations (HHS, DOL, IRS)

  • Requirements for Group Health Plans and Health Insurance Issuers Relating to Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections (HHS, DOL, IRS)

While the Interim Final Regulations and other guidance have clarified certain ambiguities, several ambiguities still exist that require additional guidance. For example, with respect to the elimination of lifetime and annual limits, the regulations provide that dollar limits are not permitted but it is not clear whether the regulatory limits preclude the imposition of treatment or visit limits. Further, although a reasonable good faith interpretation of what constitutes an essential health benefit is sufficient, making this determination for all available benefits can be time-consuming. Additional guidance is needed to clarify these ambiguities.

Dependent Coverage of Children to Age 26 (All Health Plans)

  • Interim Final Rules (HHS, DOL, IRS)

  • IRS Notice 2010-38: Tax Treatment of Health Care Benefits Provided with Respect to Children Under Age 27

With the Interim Final Rules and Notice 2010-38, the implementation and application of the age 26 rules is pretty straightforward. What may cause administrative issues is implementation of a modified dependent verification process to reflect the new rules. It is important that the appropriate human resources personnel work closely with the dependent verification provider (whether performed internally or through a third party vendor) to ensure a smooth transition.

Early Retirement Reinsurance Program

  • Interim Final Regulations (HHS)

Applications for reimbursement have been filed and generally accepted. Plan sponsors with approved applications are now able to report costs and requests for reimbursements securely under the program. If you are a participant in the ERRP, make sure to keep track of updates as the HHS has indicated that it will be providing further updates to the reimbursement process.

Grandfathered Plans

  •  Interim Final Regulations (HHS, DOL, IRS)

  •  FAQs – Grandfathered Health Plans (DOL)

  •  FAQs – Affordable Care Act Implementation Part IV

The Interim Final Regulation and FAQs provide guidance with respect to the application of the grandfather rules for health plans. In order to continue to maintain grandfather status, we suggest that any contemplated changes to benefits or cost sharing be thoughtfully studied to ensure that any such changes do not jeopardize this status. See Appendix A for a checklist regarding grandfathered status.

Prescription Drugs (All Health Plans)

  •  Notice 2010-59 FSA Reimbursement for OTC Medicines with a Prescription (IRS)

This notice provides that over-the-counter medicines may be reimbursed under an employer-sponsored health plan (including an FSA, HRA, HAS, or Archer MSA) only if the drug is provided through a prescription or is insulin. The notice also places limits on the use of FSA or HRA debit cards for the purchase of OTC medicines. If your health plan reimburses for over-the-counter medicines, you will need to amend your plan to provide for this change.

Reporting (All Health Plans)

  •  Notice 2010-69 Interim Relief with Respect to Form W-2 Reporting of the Cost of Coverage of Group Health Insurance Under §6051(a)(14)

Health care reform provides that the aggregate cost of applicable employer-sponsored coverage must be reported on an employee’s Form W-2, but this notice offers relief to employers from having to comply in 2011. The DOL and IRS have both indicated that further guidance regarding an employer’s reporting requirements will be forthcoming.


  •  FAQs About the Affordable Care Act Implementation (DOL)

  •  FAQs – Exemption for Group Health Plans (DOL)

In this FAQ, the DOL has confirmed that health plans with less than 2 active employees are exempt from the application of health care reform. Based on this, group health plans and retiree-only plans (with less than 2 active employees covered by the plan) are exempt from health care reform. This FAQ also provides that the DOL may provide additional guidance in the future to further clarify the application of this rule.